Remuneration Advisor Independence

(article by Greg Brogan)

Compliance TemplateRemuneration Advisor Independence

 

Extract:

Remuneration Consultant Independence

Changing Times for HR Professionals

 

The regulatory environment is changing. The Boards of Australian companies will soon be compelled to ensure that the advice they’re getting on remuneration is provided by an independent practitioner. For ASX 300 companies in particular, the most efficient method of compliance is to ensure that the Remuneration Consultant is truly independent – that the business of the consultant is exclusively the provision of remuneration consulting services; that they have no affiliation with other organisations and that the advice they provide to the Remuneration Committee of the Board is free of any management contamination.

 

Emerging Independence Regulations

In Australia, APRA and the Productivity Commission have both made recommendations related to the independence of external parties who provide advice to listed companies on the subject of remuneration, particularly executive remuneration. In the United Kingdom the recent Walker Report (Walker Review of Corporate Governance of UK Banking Industry (link) Nov 2009 has emphasized the importance of ensuring that the Remuneration Consultant is independent and has recommended thus:

 

Recommendation 38/39

Remuneration consultants should put in place a formal constitution for the professional group that has now been formed, with provision: for independent oversight and review of the remuneration consultants code; that this code and an indication of those committed to it should be lodged on the FRC website; and that all remuneration committees should use the code as the basis for determining the contractual terms of engagement of their advisers; and that the remuneration committee report should indicate the source of consultancy advice and whether the consultant has any other advisory engagement with the company.(Page 126)

 

The inference here is that the UK governance regime will look dimly on remuneration advice provided by parties with whom the company has other relationships such as parties providing Auditing, Accounting or Legal services, and it is well they should. The potential for conflict is enormous...